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September 01, 2011 at 12:06 PM
New research has found that 78% of all advisors are using alternative investments within client portfolios, Cogent Research said Tuesday, mainly for diversification and with some variation related to channel differences and other factors.
The main reasons for using alternatives are to further diversify portfolios (83%), manage risk (80%) and to achieve absolute returns (54%). Far fewer advisors report using alternatives in an effort to deliver returns above a benchmark (20%) or for tax-management purposes (19%).
These findings were included in “2011 Advisor Brandscape,” based on surveys of 1,643 retail investment advisors. This is the first time the report included a section on advisors’ usage and attitudes regarding alternatives.
Advisors now allocate an average of 11% of their book to alternatives, spread across a variety of products, Cogent says.
Independent advisors, the heaviest overall users of alternatives, show the strongest preference for venture capital, private equity and hedge funds. Bank advisors have a greater appetite for limited partnerships, and RIAs tend to use structured products/notes.
“It was somewhat surprising to us to see such broad and consistent use of alternatives, not only across channels, but also based on assets under management,” said John Meunier, Cogent principal and author of the report, in a press release. “Clearly, advisors of all stripes and tenure have embraced the notion that managing client portfolios in today’s environment requires the tools to provide greater asset-class diversification and better risk management strategies.”
Among the 22% of advisors not currently using alternatives, almost half (47%) admit that their own lack of lack of knowledge is holding them back.
